CJEU decision "casts a shadow of uncertainty" over the use of age criteria in pension scheme actuarial calculations, says expert

Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the decision by the Court of Justice of the European Union (CJEU) turned on a "surprising" interpretation of the relevant European legislation. The verdict meant that those involved in actuarial decisions would now have to show that the use of age criteria was objectively justifiable, even in circumstances where UK law appeared to provide an exemption to the general rule, he said.

Responding to a reference from the Danish court, the CJEU ruled that employers could in principle pay different rates of employer contributions into an occupational pension scheme according to an employee's age, provided that it could objectively justify the difference in treatment. However, it said that a separate exemption in the EU Framework Directive that permitted the use of age criteria in actuarial calculations did not apply to the practice of paying age-related contributions.

Discriminating on grounds of age is generally prohibited under European employment law, unless a member state can prove that differences in treatment are "objectively and reasonably justified" by a "legitimate aim". Member states may also set ages for admission or entitlement to benefits under an occupational social security scheme that covers the risks of old age and invalidity without being in breach of the legislation; and may use age criteria in actuarial calculations "in the context of such schemes".

In its ruling, the CJEU said that the provision of the relevant law in relation to occupational pension schemes had to be interpreted strictly, and as a whole. This meant that age criteria could only be used in actuarial calculations for the purposes of setting ages for admission or entitlement to benefits. In this case all employees of Experian, which operated the pension scheme in dispute, were enrolled onto the scheme once they had been with the company for nine months, so this provision was irrelevant.

"The wording of [the provision] .... suggests that that provision applies only to the cases that are exhaustively listed therein," the CJEU said in its judgment. "Thus, if the European Union legislature had intended to extend the scope of that provision beyond the cases expressly referred to therein, it would have said so expressly, by using, for example, the adverbial phrase 'inter alia'."

"The general scheme and purpose of [the legislation] supports that conclusion. That directive gives specific expression, in the field of employment and occupation, to the principle of non-discrimination on grounds of age, which is regarded as being a general principle of European Union law ... Since [the provision] allows member states to provide for an exception to the principle of non-discrimination on grounds of age, that provision must be interpreted restrictively," the judgment said.

"The judgment suggests that the use by pension schemes of age criteria in actuarial calculations is no longer automatically exempt from age discrimination, except where age criteria are use to fix admission and retirement ages," pensions expert Simon Tyler said. "Instead, an exemption only applies if the use of age criteria in those calculations is objectively justifiable."

"UK legislation already provides that age-related contributions must meet a specific objective aim in order to be exempt from age discrimination; but this case otherwise casts a shadow of uncertainty over the use of age criteria - for example, in calculating reductions to pensions on early retirement. The use of age criteria will now have to be shown to be objectively justifiable in every case, even where the UK legislation purports to provide an exemption," he said.

Those involved in actuarial calculations should now "consider recording the aim of the calculation, to help justify the use of age criteria", he said.

The CJEU ruled that the practice of paying age-related pension scheme contributions itself could be objectively justified, and that whether the age-related increases met that requirement was a matter for the national court. It noted that it did not "appear unreasonable to regard the age-related increases in contributions as enabling" legitimate aims in this case, as higher contributions for older workers would allow them to build up greater savings in shorter periods and cover the higher risks of death, incapacity or illness, the CJEU said.

However, the CJEU added that an otherwise discriminatory measure could only be appropriate if it "genuinely reflects a concern to attain [the aims pursued] in a consistent and systematic manner". The national court should consider whether the difference in treatment was "off set by the benefits of the occupational pension scheme at issue in the main proceedings" when deciding whether this was the case, the CJEU said.